CAC Score Calculator
Use this calculator to determine your Customer Acquisition Cost (CAC) Score, which is the ratio of Customer Lifetime Value (LTV) to Customer Acquisition Cost (CAC). This metric helps evaluate the efficiency and profitability of your customer acquisition efforts.
Customer Acquisition Cost (CAC) Inputs
Customer Lifetime Value (LTV) Inputs
Understanding the CAC Score
The CAC Score, often expressed as the LTV:CAC ratio, is a critical metric for businesses to understand the profitability and sustainability of their growth strategies. It compares the total revenue a customer is expected to generate over their lifetime (Lifetime Value) against the cost incurred to acquire that customer (Customer Acquisition Cost).
What is Customer Acquisition Cost (CAC)?
CAC is the total cost of sales and marketing efforts needed to acquire a new customer. It includes all expenses related to convincing a potential customer to buy a product or service. This can encompass advertising spend, salaries of marketing and sales teams, commissions, software tools, and overheads. The formula for CAC is:
CAC = Total Marketing & Sales Spend / Number of New Customers Acquired
What is Customer Lifetime Value (LTV)?
LTV is a prediction of the net profit attributed to the entire future relationship with a customer. It's an estimate of the total revenue a business can reasonably expect from a single customer account over the course of their relationship. A common way to calculate LTV is:
LTV = (Average Purchase Value × Average Purchase Frequency per Year × Average Customer Lifespan in Years) × Gross Margin Percentage
- Average Purchase Value: The average amount a customer spends per transaction.
- Average Purchase Frequency per Year: How many times, on average, a customer makes a purchase in a year.
- Average Customer Lifespan in Years: The average duration a customer remains active with your business.
- Gross Margin Percentage: The percentage of revenue left after deducting the cost of goods sold. This ensures LTV reflects actual profit, not just revenue.
Interpreting Your CAC Score (LTV:CAC Ratio)
The CAC Score provides a clear picture of your acquisition efficiency:
- LTV:CAC < 1:1 (e.g., 0.5:1): This is a red flag. You are spending more to acquire customers than they are worth to your business. This indicates an unsustainable business model that needs immediate attention.
- LTV:CAC = 1:1: You are breaking even on customer acquisition. While not losing money, this ratio doesn't allow for growth or profit. It's a sign that you need to optimize your acquisition costs or increase customer value.
- LTV:CAC = 3:1: This is generally considered a healthy and desirable ratio. It suggests that your customer acquisition efforts are efficient and profitable, allowing for sustainable growth and reinvestment.
- LTV:CAC > 4:1: An excellent ratio, indicating highly efficient customer acquisition and strong profitability. Businesses with such a high ratio might consider investing more in marketing to accelerate growth, provided the ratio remains favorable.
Why is the CAC Score Important?
Monitoring your CAC Score helps you:
- Optimize Marketing Spend: Identify if your marketing channels are delivering profitable customers.
- Improve Business Strategy: Make informed decisions about pricing, product development, and customer retention.
- Attract Investors: A strong LTV:CAC ratio is a key indicator of a healthy, scalable business model for potential investors.
- Drive Sustainable Growth: Ensure that your growth is not coming at an unsustainable cost.
Example Calculation:
Let's use the default values in the calculator:
- Total Marketing & Sales Spend: $10,000
- New Customers Acquired: 100
- Average Purchase Value: $50
- Average Purchase Frequency (per year): 4
- Average Customer Lifespan (years): 3
- Gross Margin (%): 70%
1. Calculate CAC:
CAC = $10,000 / 100 = $100
2. Calculate LTV:
LTV = ($50 × 4 × 3) × (70 / 100)
LTV = ($600) × 0.70 = $420
3. Calculate CAC Score (LTV:CAC Ratio):
CAC Score = $420 / $100 = 4.2
In this example, the CAC Score is 4.2:1, which is an excellent ratio, indicating highly efficient customer acquisition.